Bankrupting Institutional Investors
If there’s one post to read from WallStreetBets to explain how GameStop shares went from single digit prices in September to $65.01 in January it’s “Bankrupting Institutional Investors for Dummies, ft GameStop.”
In the Sept. 19, 2020 post, Player896 painted a clear fundamental case for why GameStop shares were approaching lift-off. And here was the kicker:
As shares began their steady rise during the last four months of 2020, more and more users joined the bandwagon. And as part of their welcome party they were reminded of the code of conduct: never sell, never surrender. Or in WallStreetBets parlance, only buy if you have diamond hands.
Along the way WallStreetBets began calling out those on the other side of the trade. Gabe Plotkin’s Melvin Capital was the first to come under the microscope.
Plotkin represented the perfect foil: a pedigreed portfolio manager who set out on his own after managing money for legendary hedge-fund manager Steve Cohen. The failed bet on GameStop has dragged down returns at Melvin Capital. Its portfolio was said to be down 15% in the first three weeks of 2021, according to the Wall Street Journal.
The greatest ire was reserved for Left and Citron. His call that GameStop would fall back to $20 quickly on Jan. 19 touched a nerve. Shares closed at $39.36 that day, continuing a surge set off when Cohen was named to the board a week earlier.
This wasn’t the first time Left had attacked a WallStreetBets darling. His short play against Palantir Technologies Inc. and bearish call for Chinese carmaker Nio Inc., among others, had already made him persona non grata in the land of tendies.
The attacks on Left and Citron were too much for the hardened short-seller. He suspended a scheduled live stream aimed at explaining its position on GameStop because of “too many people hacking Citron twitter,” Citron said in a Jan. 21 tweet.
As unlikely as it may seem, the rise to $60 is just the beginning, if you buy into WallStreetBets thinking. The historic gains have, by at least one account, so far come without much help from the great short squeeze.
“There is a GameStop short squeeze, but no the squeeze is not the major force behind the price move,” Ihor Dusaniwsky, managing director of predictive analytics at S3 Partners, said by email on the day Cohen joined the board. “This is much like the chicken and egg question — did long buying lead to short covering/squeeze or short covering/squeeze lead to long buying?”
Short interest was 139.67% of the float as of Jan. 21, more than double the next highest level of any stock in the Russell 3000 Index, according to data from S3 Partners.
Of course, it also could all unravel at the first sign of mutiny within the ranks of the WallStreetBets pirates.
But if it does all come crashing down soon, don’t lose any sleep for DeepF——gValue.
The WallStreetBets legend claims he rolled his initial $53,566.04 in GameStop call options into an $11.2 million paper fortune.
—With assistance from Olga Kharif and Bailey Lipschultz.
This article was provided by Bloomberg News.